Charter CEO Tom Rutledge Reveals His Dealmaking Chops

Jan. 16 (Bloomberg) -- For Tom Rutledge, the man
orchestrating a $61 billion takeover battle for Time Warner
Cable Inc., the role of dealmaker came late in his career.

In his almost four decades in the cable business, Rutledge
has been seen as an operational expert, someone who could manage
millions of customers while hammering out agreements with TV
networks. In late 2011, when he joined Charter Communications
Inc., Rutledge set his sights higher. It was then that he
hatched a plan to use a series of deals to transform Charter,
the fourth-largest cable provider, into something much bigger.

While billionaire cable veteran John Malone is seen as the
top proponent of industrywide mergers, Rutledge has been quietly
plotting a takeover strategy for more than two years, according
to two people familiar with the matter. After teaming up with
Malone, Rutledge completed a $1.63 billion purchase of
Cablevision Systems Corp.’s Optimum West division last July. The
“second step” is a Time Warner Cable deal, though he’s
weighing other options as well, Rutledge said.

“Optimum West was the first for us,” Rutledge, Charter’s
president and chief executive officer, said in an interview this
week. “Time Warner Cable is a great asset. Obviously there are
other opportunities out there.”

The 60-year-old executive was thrust into the spotlight
this week during public sparring between his company and Time
Warner Cable, which has rejected Charter’s bid. After Time
Warner Cable CEO Rob Marcus called the $132.50-a-share price “a
lowball offer,” Charter fired back that the takeover target’s
management was ruining the company with a “failed operational
strategy.”

Investor Pitch

Rutledge is now taking his case directly to shareholders.
Pushing through a deal would mean acquiring a much larger
company: Time Warner Cable is the second-biggest U.S. cable
provider, with more than twice as many subscribers. And
investors are seeking an offer of $140 to $150 a share,
according to surveys compiled by Bloomberg.

“We are not going to let Charter steal the company,” Time
Warner Cable, based in New York, said in a statement this week.

Rutledge’s merger strategy got a jump-start last year, when
Malone’s holding company Liberty Media Corp. agreed to acquire
27 percent of Charter for about $2.6 billion. Malone, who was on
an airplane when he came up with the notion of investing in
Charter, called Rutledge out of the blue to suggest the idea,
according to people with knowledge of the situation, who asked
not to be identified because the details aren’t public.

‘Acquisition Machine’

Since then, Malone has become the highest-profile advocate
for cable deals, referring to Charter as a potential
“acquisition machine.” Still, Rutledge was a driving force in
pursuing Time Warner Cable, one of the people said.

While Rutledge publicly stresses that Charter doesn’t need
to buy other operators to grow, Time Warner Cable is a very
attractive target, he said.

“This acquisition is an opportunity for us to create
enormous value for shareholders,” Rutledge said in the
interview. “That’s why we want to do it.”

Rutledge has spent almost his entire adult life in the
cable business. He got his start at a local cable operator --
American Television & Communications, which was later acquired
by Time Warner Cable -- after getting an economics degree at
California University in Pennsylvania. Rutledge went on to work
for several of the industry’s biggest providers, including the
company he’s now trying to acquire.

Triple-Play Pioneer

As chief operating officer of Cablevision, a company he
joined in 2002, Rutledge devised a plan to reduce prices for
consumers who bought a bundle of services. This idea of
packaging video, Internet and phone into a so-called triple play
is now an industry standard.

Less well known is the role he played in helping
Cablevision acquire Bresnan Communications Co. for $1.37 billion
in 2010. He convinced Cablevision that buying Bresnan would be
an efficient way to add subscribers, as well as giving it more
leverage when negotiating with TV programmers over licensing
fees, according to a person familiar with the deal.

Bresnan was eventually renamed Optimum West, which Rutledge
then acquired again in last year’s transaction -- this time for
Charter.

“While I don’t think of Tom as a deals guy -- just because
he hasn’t routinely done transactions throughout his career --
he’s definitely gotten the better part of the ones he’s done,”
Craig Moffett, an analyst at MoffettNathanson LLC in New York,
said in an interview.

Industry Trends

Rutledge, a hard-nosed operator, also has a clear command
of the industry’s direction, Moffett said.

“I’m always struck by how enormously insightful an
economist he is when he thinks about the business,” he said.

Rutledge spearheaded the cable business’s push toward
adding Wi-Fi hot spots in major cities and updated Cablevision’s
hardware and software, allowing the company to roll out new
products at a faster pace than peers, according to Shahid Khan,
chairman of MediaMorph Inc., a software company that caters to
the media industry.

Since joining Stamford, Connecticut-based Charter, Rutledge
has introduced a digital version of its cable service, aiming to
catch up to rivals. He also has narrowed losses at the formerly
bankrupt cable provider and added broadband subscribers.

Occasionally, Rutledge’s vision puts him at odds with other
executives. He abruptly left Cablevision in 2011 amid
disagreements over the direction of the company, according to
people with knowledge of the matter. Cablevision was a shrinking
family-run business, and Rutledge wanted to be somewhere that
was expanding, the people said. That drive was part of the
reason he bought the Bresnan business twice, according to the
people.

CEO Job

Rutledge parted ways with Time Warner Cable in 2001 after
he was passed over for CEO, a job that went to Glenn Britt.
Marcus, 48, took the helm at the beginning of this year
following Britt’s retirement.

If Charter is successful with its takeover attempt,
Rutledge would run the combined company, according to people
familiar with the plan. That would put him in the job he sought
more than a decade ago. Marcus, meanwhile, has said he’s willing
to step aside if an attractive enough offer emerges. The two men
also have a personal connection: Their wives are friends, Marcus
said in an interview last month.

In Charter’s conference call with investors this week,
Rutledge outlined the operational challenges facing Time Warner
Cable, which is losing TV subscribers at a faster rate than its
competitors. The prospect of putting Rutledge in the driver’s
seat is one of the deal’s selling points, Moffett said.

“There’s no question Tom is the guy investors would love
to see returning to Time Warner Cable and managing it with a new
level of intensity,” he said. “I don’t think that should be
taken in any way as a knock on Rob Marcus. It should be taken as
an acknowledgment of the extraordinary success that Tom has had
throughout his career.”